Qatari energy minister's Japan visit signals LNG deals on the cards

Japanese companies may be on the verge of signing Qatari LNG deals following recent meetings with the Middle Eastern exporter's energy minister, but there are still sticking points to be addressed before companies proceed with LNG purchases or participation in the North Field expansion project, according to industry observers and sources familiar with the matter.

"There is a gap between Japanese individual endusers wanting to secure short-term to mid-term [LNG contracts] instead of long-term, the companies should consider aggregation through Japanese portfolio players, or consortium purchase," Hiroshi Hashimoto, senior fellow of the energy security unit at the Institute of Energy Economics, Japan.

"[Qatar] is an extremely favorable and credible supply source on supply conditions, except for pricing and destination conditions," said Hashimoto, adding that Japanese companies should work with the government to secure Qatari LNG by deepening their relationship.

The latest talks came to light following a visit to Japan by Qatar's Minister of State for Energy Affairs Saad al-Kaabi, during which he had meetings with senior executives of current and prospective Japanese LNG buyers and project partners. Kaabi also met with Japan's Minister of Economy, Trade and Industry Yasutoshi Nishimura and discussed enhancing bilateral cooperation in energy, according to QatarEnergy.

A list of Japanese companies that Kaabi met with, released Sept. 26 by QatarEnergy, includes JERA, Chubu Electric, Tohoku Electric, Marubeni, Mitsui, Mitsubishi, LNG Japan and Japan Bank for International Cooperation (JBIC).

JERA and Tohoku Electric are current LNG buyers from the Qatargas 3 project, in which Mitsui has a 1.5% stake. Mitsui was also a partner with Marubeni in the Qatargas 1 project until QatarEnergy took over the project at the start of 2022. LNG Japan also has a 3% share in RasGas' Train 1 and 2.

A JERA spokesperson confirmed the company was in discussions with Qatar as part of its ongoing talks with various suppliers for LNG procurements, but declined to elaborate on specifics of the talks.

Officials from Tohoku Electric, Mitsui and Marubeni declined to comment on potential Qatari LNG purchases, or on participating in the North Field expansion project. Similarly, Mitsubishi and LNG Japan declined to comment.

During the meeting with Kaabi, JBIC -- which provides loans for Japanese companies' LNG imports and finance for LNG projects in which Japanese companies are involved -- discussed LNG markets, a JBIC spokesperson said.

North Field expansion

The recent talks with Japanese companies emerged as Qatar aims to lock in all long-term LNG contracts from the two phases of the North Field expansion by the end of 2023.

Speaking to S&P Global Commodity Insights in Tokyo on Sept. 25, Kaabi said LNG sales from the North Field expansion were "going very well," and that there was "a possibility" of selling all of the LNG from the massive project by the end of the year.

"It takes two sides to agree, right? We are working with a lot of people," he added, declining to elaborate on specific commercial negotiations.

S&P Global reported July 3 that a couple of Japanese companies were in negotiations with Qatar for LNG supply contracts as well as participation in Qatar's North Field expansion project.

QatarEnergy LNG, formerly known as Qatargas, is at the center of the country's LNG expansion plans, with 14 LNG production trains currently operating, QatarEnergy said in a Sept. 14 statement. Qatar is raising its LNG production capacity from 77 million mt/year currently to 126 million mt/year by 2027 with an additional six LNG trains.

Qatargas 1

The latest talks signal an improvement in the situation after Japanese companies in 2021 allowed a total of more than 7 million mt/year of Qatargas 1 LNG offtakes to expire, amid disagreements over contractual flexibility as well as uncertainty over Japan's future LNG demand due to its 2050 net zero target.

JERA's Qatargas 1 LNG contractual expiry amounted to about 5.5 million mt/year, part of which was shared with Shizuoka Gas, with the rest of the expiring contracts held by Tohoku Electric, Kansai Electric, Chugoku Electric, Tokyo Gas, Osaka Gas and Toho Gas.

The Qatargas 1 LNG contractual expiry soured a long-established supplier-buyer relationship spanning more than 20 years, and came despite Qatar being a stable and responsive supplier to Japan in the wake of the Great East Japan Earthquake offshore Fukushima in March 2011 and subsequent nuclear outages in the country in following years.

Japanese imports of Qatari LNG plummeted 67.9% on the year to 2.88 million mt in 2022, with Qatari LNG accounting for just 4% of imports in the year, compared with 12.1% in the previous year, according to Ministry of Finance data.

The subsequent boost in Japan's share of Australian LNG imports to more than 40% has put Japan's energy security on a more fragile footing considering the potential impact from a series of policy changes in Australia affecting its LNG exports, said Takayuki Nogami, chief economist at Japan Organization for Metals and Energy Security, or JOGMEC.

"In the event of expansion in its Qatari LNG lifting from term contracts, it would not only help with diversifying Japan's supply sources but also stabilizing its LNG supply foundation, contributing to enhance the country's mid-to-long term energy security," Nogami said.

Japan's Qatari LNG imports over January-August were down 6.8% on the year to 2.02 million mt, accounting for 4.6% of the total imports during the eight-month period, according to the MOF data. Australia accounted for 42.1% of the total imports.

The Japan Customs Cleared crude oil price was at $82.081/b in August, up 2% from July. Japan's long-term LNG contracts are linked to the JCC crude price, but with a lag of a few months so fluctuations in oil prices usually take time to be reflected in LNG prices.

Finding solutions

Sources said that the Qatargas 1 LNG contract expiry was due in part to disagreements over contractual flexibility, coupled with demand uncertainty due to Japan's 2050 carbon neutrality target -- issues that persist today when considering long-term LNG supply.

"Selling to Japanese companies seems difficult because the buyers don't know how much LNG [they] can use in the future so we need to prepare for trading cargoes," said one source familiar with the matter.

For Japanese companies, it has already become difficult to commit to new long-term LNG contracts given the demand uncertainty but some buyers are looking at the possibility of forming a consortium -- as they have done in the past -- to collectively take a large supply volume, said another source.

Japan's existing Qatari LNG contracts are set to expire around the end of the decade, with Kansai Electric's 500,000 mt/year contract ending in 2027, followed by JERA's 700,000 mt/year contract in 2028, and Tohoku Electric's 180,000 mt/year contract in 2030.

JERA's Global CEO Yukio Kani, in an interview on the sidelines of the Gastech conference in Singapore last month, was upbeat about the prospects for an ongoing relationship with Qatar.

"Qatar is a very important supplier; not only a big supplier but also we have been doing business together for many, many years," he told S&P Global.

"If we could find a way in the situation, it is very valuable to buy LNG and continue our relationship with Qatar. That's for sure," he added.